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SMEs seek to ride out economic slump
Many small- and medium-sized enterprises (SMEs) struggled desperately in 2008 to survive a period of stagnation and decline. They will even encounter more difficulties in 2009 unless they work out appropriate strategies to adapt themselves to the new situation.
Numerous difficulties
High inflation in 2008 posed a great challenge to Vietnamese businesses, says Cao Si Kiem, President of the Vietnam Association of Small- and Medium-sized Enterprises. According to the former Governor of the State Bank, at least 60 percent of businesses were plunged into a period of stagnation and decline, 20 percent of them were on the brink of bankruptcy, and the remaining 20 percent survived.
Market picked up after the Government introduced an 8-point solution package to curb runaway inflation. The central bank offered low interest rates, making it easier for businesses to get access to loans.
However, businesses faced greater difficulties as the financial crisis began to spread across the US and the world at large. SME markets have shrunk together with a drop in their product prices.
The ‘frozen’ steel market and a 50 percent decline in prices since July last year have caused huge losses to hundreds of enterprises and thousands of households that produce and trade in steel in Da Hoi village, Phu Khe ward, Tu Son district of Bac Ninh province, about 50km from Hanoi.
“Within 2 and a half months, my steel workshop suffered a total loss of VND1.6 billion,” says Tran Van Dung, a local businessman in the village.
The damage to businesses and individuals worsened as steel products left in stock increasingly suffer oxidation.
The ‘freezing’ of market did not spare the wood industry either. Dong Ky wood village in Bac Ninh province, which exports 70 percent of its products to China, was no exception. About 20 percent of local businesses faced bankruptcy.
“The number of orders in 2008 fell by 20-30 percent against the previous year and many enterprises in this field have only managed to break even,” says Nguyen Ton Quyen, General Secretary of the Vietnam Wood and Forestry Product Association.
Apart from market difficulties, many businesses also met obstacles in terms of capital, training, jobs, infrastructure, administrative procedures and land.
According to the president of the Hanoi Association of Industry and Trade, Vu Duy Thai, businesses nationwide were thirsty for capital but banks lent VND263 trillion from January to October, meeting just only 10 percent of the demand.
Consequently, the rate of enterprises without plans for business expansion rose to 22 percent in 2008 from just 10 percent in the previous year, according to a survey of the 2008 business climate.
What to do?
Cao Si Kiem says that to cope with the current crisis, SMSs should focus on improving management skills and the quality of human resources, widening the information base and outlook to create more business contact, and meeting with the State management agencies to iron out snags.
Dr Vo Dai Luoc, former Head of the Vietnam Economics Institute, says that businesses should adjust their market development strategies in line with the current domestic and international situation. They should fully exploit the domestic market, and at the same time seek other overseas markets, which are less affected by the crisis, such as Latin America and the Middle East. In addition, businesses should pay more attention to the middle class and poor people who make up a large proportion of population.
Le Khac Hiep, CEO of Vincom joint stock company, says that the Vietnamese economy was affected by the high inflation rate and the global financial crisis, putting businesses under more pressure.
“Given the context, businesses have no choice but to race against time to market their products and get capital back,” says the CEO.
Currently, the prime interest rate has been lowered to 10 percent, leading to a mass decline in loan rates. This is a good chance for businesses to access affordable capital.
However, according to Deputy Minister of Agriculture and Rural Development Luong Le Phuong, despite the low rates, many SMEs, especially those specializing in agro-forestry and fishery products, cannot borrow capital. Banks say that they will lend the capital only when businesses pay previous outstanding loans at high interest rates. Mr Phuong proposes that the Government extend payment deadlines and assist businesses to get an easier access to capital to maintain production.
Recently, the Government has decided to reduce the corporate income tax by 30 percent as from the fourth quarter of 2008. It says it will continue to offer around VND20-30 trillion in preferential credit loans to businesses to stimulate investment.
Vu Duy Thai, president of the Hanoi Association of Industry and Trade, says that in addition to strengthening credit activities, the Government should offer more market support services to help businesses overcome the period of stagnation.
“If businesses are left to go it alone, their products won’t move off the shelves and many will suffer losses,” says Mr Thai.
VOV
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